1 11. PROFITABILITY EVALUATION OF NEW POWER PLANT ALTERNATIVES Asko Vuorinen

2 Profitability of new power plants Contents Methodology Nuclear and wind power plants Coal power plants Gas peaking power plants Oil peaking power plants

3 Methodology Cash flow model Cash flow analysis using spread sheet forms* 1) Give annual power generation, fuel and electricity prices and investment costs 2) Program evaluates then cash flow of incomes, fuel, O&M and operating profit 3) Program calculates the net cash flow, discounted net cash flow and internal rate of return * Cash flow models are available for internet orders. See

4 Methodology Example of cash flow model

5 Methodology Discouted cash flow in example

6 Methodology Results of example In example of a 120 MW gas plant we assume Generation = 1000 GWh Electricity price = 80 eur/MWh Fuel price = 25 eur/MWh O&M price = 5 eur/MWh Investment costs = 100 Meur We will get following results Internal rate of return = 11.5 % Cumulative Discounted Cash Flow = 5.2 Meur From the diagram: Pay-back time will be 7 a

7 Methodology Assumptions In the analysis we will study additionally Energy generation in peak, intermediate and base load separately Sales of ancillary services (regulation, spinning and non-spinning reserves) After the evaluation the mode, which gives the highest internal rate of return will be selected for each power plant

8 Methodology Prices If we assume* that electricity prices are: 1) Peak load is generated 819 hours at price of 126,7 eur/MWh (= variable costs of LFO plant) 2) Intermediate load is generated 1208 hours at price 73,8 eur/MWh (= variable costs of gas plant) 3) Base load is the remaining hours at price of 47,9 eur/MWh (variable costs of coal plant) * The capacity mix is assumed to be optimal. See presentation planning of national power systems

9 Profitability of base load power plants

10 Base load power plants Performance NuclearWind OutputMW Net efficiency% 35 - Investmenteur/kW

11 Base load power plants Nuclear power plant without A/S

12 Base load power plants Nuclear power plant Nuclear plant gives high IRR = 13 % But nuclear plants need a lot of ancillary services, if the plant is the largest unit 1) Primary reserves increase by dP1 2) Secondary reserves increase by dP2 Approximate values: dP2 = (Pnuclear unit – P second largest unit)/n n = number of large nuclear units in the system dP1 = 0,8 x dP2, where 0,2 is generated by selfregulation

13 Base load power plants Nuclear power plant with A/S and transm.

Wind power plants 14

15 Base load power plants Wind power plant without A/S

16 Base load power plants Wind power plant with A/S

17 Base load power plants Wind power plant with A/S and certificates

18 Nuclear and wind power plants Summary Nuclear wind power plants may give high IRR, but consume A/S-reserves Nuclear plant needs 100 % backup within 15 secons Wind power plants need 28 % backup within 60 minutes

Coal power plants 19

20 Base load power plants Coal power plant

21 Coal power plant Coal fired plant has IRR = 5.6 % If the coal plant is the largest unit in the system, it will need A/S reserves If the coal plant is flexible, it can generate A/S reserves and increase IRR

22 Nuclear and coal power plants Flexible coal power plant with regulation

23 Flexible coal power plant with regulation Selling of regulation reserves will increase IRR from 5.6 % to 8.3 % The plant will operate at 80 % load for 5866 hours annually and offer regulation by +/- 20 % It will operate at the 100 % load for intermediate and peak hours* * Regulation reserves are generated by gas or diesel engine plants for intermediate and peak hours (2134 h/a)

24 Gas fired peaking power plants

25 Gas fired peaking power plants Performance Plant typeDual-fuel Gas EngineGas Turbine Output160 MW 160 MW160 MW Number of engines Engine outputMWe Plant outputMWe Fuel inputMWt Net efficiency%

26 Gas fired peaking power plants Gas Engine plant in energy service

27 Gas fired peaking power plants Gas Engine plant in energy service only Plant will be operated 2027 hours at full load and generates only energy IRR = 1.0 %

28 Gas fired peaking power plants GE plant with regulation and non-spinning

29 Gas fired peaking power plants GE plant with regulation and non-spinning Plant will be operated 1) 819 hours at full load and generates only energy 2) 1208 hours at 70 % load and generates energy and regulation (+/- 30 %) 3) 5973 hours at hot standby and generates non-spinning reserves Profitability IRR improves to 8.9 %

30 Gas fired peaking power plants Aeroderivative Gas Turbine plant with regulation and non-spinning

31 Gas fired peaking power plants Aeroderivative Gas Turbine plant with regulation and non-spinning Plant will be operated 1) 819 hours at full load and generates only energy 2) 1208 hours at 70 % load and generates energy and regulation (+/- 30 %) 3) 5973 hours at hot standby and generates non-spinning reserves Profitability IRR = 4.8 %

32 LFO fired peaking plant

33 LFO fired peaking plant Performance Plant typeDiesel engineDiesel engineGas turbine Output160 MW160 MW160 MW Number of engines10204 Engine outputMWe Plant outputMWe Fuel inputMWt Net efficiency%

34 LFO fired peaking plant Diesel Engine plant without A/S

35 LFO fired peaking plant Diesel Engine plant without A/S Plant operates 819 hours at 100 % load and generates only energy Without ancillary services a diesel engine plant has negative IRR

36 LFO fired peaking plant Diesel Engine plant with regulation and non-spinning

37 LFO fired peaking plant Diesel Engine plant with regulation and non-spinning The diesel engine plant produces 1) energy at 70 % load for 819 hours 2) regulation +/- 30 % for 819 hours 3) non-spinning service for 7181 hours The profitability IRR = 6.9 %

38 LFO fired peaking plant Gas turbine plant in energy service The gas turbines which cannot generate A/S services have negative cash flows* Only those GT plants which can generate non-spinning services can be profitable** *Industrial gas turbines cannot be started up in 10 minutes ** aero-derivetives can start up in 10 minutes)

39 LFO fired peaking plant GT plant with regulation and non-spinning

40 LFO fired peaking plant GT plant with regulation and non-spinning The GT plant produces 1) energy at 70 % load for 819 hours 2) regulation +/- 30 % for 819 hours 3) non-spinning service for 7181 hours The profitability IRR = 3,3 %

41 LFO fired peaking plant Summary The best operation mode for LFO plant is peaking, regulating and non-spinning service With A/S revenues the IRR of diesel engine plant becomes 7 %

42 Summary and conclusions The profitability of any type of power plant can be evaluated using cash flow models used in the presentation The best cash flow models can evaluate the infuence of ancillary services The flexible power plants, which can generate ancillary services can improve the profitability considerably

43 For details see reference text book ”Planning of Optimal Power Systems” Author: Asko Vuorinen Publisher: Ekoenergo Oy Printed: 2008 in Finland Book and programs are available at